Misreading reserves outlook: SBP chief misled PPP govt, stalled IMF deal

Yaseen Anwar signed almost the same programme 5 months later that he had earlier described as ‘harsh’, documents show.

ISLAMABAD:

The State Bank of Pakistan (SBP) governor had allegedly misled the former president about foreign exchange reserves and opposed signing a programme with the IMF in March by the Pakistan People’s Party government – a delay that cost the country $2  billion to defend devaluation of the rupee, and added over Rs500 billion in debt.

Documents available with The Express Tribune revealing the inside story of meetings held at the Presidency regarding the IMF issue indicate that SBP Governor Yaseen Anwar had opposed signing the IMF programme on the pretext of its ‘harsh conditions’. He had also assured the president that the situation was manageable as foreign currency reserves were not expected to fall below $8.5 billion by June 2013.

Former president Asif Zardari’s secretary-general Salman Faruqi had said, “If the SBP governor feels so strongly about the reserves and exchange rate position, he should hold a press conference that I can immediately arrange,” but the governor refused.

These documents pertain to a January 29 meeting on the country’s economic situation and talks with the IMF. The meeting was held in the Presidency and attended by the heads of the state, the government and the economic team, which was followed by another meeting of Monetary and Fiscal Policies Coordination Board, held two days later in the finance ministry.

Interestingly, after five months, the governor as a co-signatory, signed almost the same programme that he had described as ‘harsh’. But between January and September period, the SBP consumed additional $2 billion to defend sliding of the rupee against the US dollar. The country had eventually added Rs540 billion in national debt on account of transactional loss incurred due to depreciation of the rupee.

At that time, the exchange rate was 97 rupee per dollar, which slipped to Rs107. The depreciation of every single rupee added Rs54.5 billion in national debt, according to economists.

The country’s total external public debt is $54.5 billion as of June 2013.

Documents disclosed that the previous PPP-government had made significant progress in staff-level negotiations with the IMF and the latter had agreed to schedule an Executive Board meeting on March 6 to approve the $5.4 billion package. The documents showed that the programme negotiated by the previous government and the one signed by the PML-N government was almost the same.

The options that the Presidency meeting debated were either risking the balance of payments crisis near the elections or sign the IMF programme to comfort the markets.

At the outset, former finance secretary Abdul Wajid Rana told the high-level gathering that a balance of payment crisis could erupt any time between March and June due to precarious reserves situation. He had said that the foreign currency reserves held by the SBP which, at that time, stood at $8.6 billion, would decline to $6.5 billion by June 2013, the documents revealed.

“It is important to finalise the programme with the IMF now to ensure a smooth transition, and economic and political stability,” Rana is quoted to have said.

Even the former state minister for finance Saleem Mandviwalla had opposed the programme but Yaseen Anwar opposed the idea stating, “The IMF neither understands our economic conditions nor the capital markets of Pakistan.”

The SBP governor went on to say that the IMF assessment was incorrect and the foreign currency reserves would be far above $7 billion by June 2013. In the Q-block meeting, he said the reserves would be as high as $8.5 billion by June 2013, according to Q-block meeting documents.

On the contrary, his tall claims of ensuring foreign currency reserves at $8.5 billion proved to be wrong and the reserves fell to $6 billion in June, much below the finance secretary’s assessment. Earlier this month, the governor had told The Express Tribune that in his opinion the programme should be signed after June – a statement that is contrary to official record.

The former finance minister Dr Hafeez Shaikh had criticised Yaseen Anwar for his capacity constraints to understand the economy and had remarked that ‘the SBP is highly mistaken’.

Published in The Express Tribune, September 23^rd, 2013.